Market Commentary

A portfolio manager discusses the U.S.’s return to world economic dominance, the positive implications of a rise in interest rates, how he sees today’s market volatility as a plus, the importance of maintaining equity exposure outside the U.S. and the potential benefits of opening a 529 college savings plan.

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An economist looks at today’s U.S. equity valuations in light of low current interest rates and an accelerating economy, and concludes that earnings — and by extension, returns — will continue to rise.

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An economist anticipates a gradual rise in U.S. interest rates over the next year or two, given the Fed’s policy of tapering off its purchases of Treasury and mortgage securities. However, low inflation should keep rising rates in check.

Economist Darrell Spence discusses his expectations for accelerating growth in the U.S.

Despite recent signs of a slowdown in activity, the U.S. economy remains in expansion mode and growth is likely to accelerate in the months ahead, says Capital Group economist Darrell Spence. Severe weather has clearly had an impact in recent months. However, taking a step back and looking at the big picture, the U.S. economic recovery remains on track, thanks to pent-up housing demand, accommodative monetary policy, improving fiscal conditions at state and local governments, a significant federal budget compromise, and the end of a long-running recession in Europe that had dented U.S. exports.

The political situation is fluid. Currently, we anticipate that the longer term impact on global equity and bond markets should be limited. Similarly, there appears to be only a relatively small risk of significant contagion spreading to other developing economies.

Russian economic growth could decelerate further, which may pressure company earnings and lead to a moderately deteriorating credit situation. That said, Russia’s overall financial metrics remain sound and arguably a significant degree of uncertainty is reflected in Russian debt prices.

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American Funds economist Darrell Spence asserts that the U.S. economy is nearing the end of its deleveraging cycle and points to fading headwinds in suggesting that growth this year could exceed 3% for the first time since the end of the recession.

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American Funds investment analyst Brad Barrett illustrates why a technological advancement needs the proper business model and timing to market, in addition to the original innovative idea, in order to succeed.

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American Funds investment analyst Brad Barrett discusses how Google’s culture of continuous improvement and innovation influenced its business model for entering the mobile phone business with Android.

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Stocks ended the year with strong gains in developed economies, reaching historic highs in several key markets. Central bank stimulus, an accelerating U.S. economy, and improved corporate earnings supported higher valuations in the U.S, Europe and much of Asia. Emerging markets trailed developed markets, hampered by concerns about U.S. monetary policy. Information technology stocks rallied around the world, while rising interest rates weighed on the utilities sector. U.S. Treasury bonds declined as rates reached a high point for the year and investors moved out of safe-haven assets. The dollar fell 2% against the euro but rallied 7% versus the yen.

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An economist discusses the potential for the U.S. economy to break free of its sluggish post-recession growth now that headwinds such as government retrenchment and a weak European export picture have subsided.

Portfolio manager Jonathan Knowles shares his views on building concentrated portfolios and why he likes health care stocks. He talks about how U.S. companies are among the most disciplined in their capital allocation and why many of them tend to be great long-term investments. He also discusses:

What's still attractive in the U.S., despite the significant market run-up

The potential for banks in Ireland and Greece

Opportunities in India, Nigeria and South Africa

Areas of health care showing the greatest innovation

Favorable economics and pricing power of tobacco companies

Many investors believe that valuations in the U.S. are full. How do you currently view the U.S. market, especially relative to other markets on a global basis?

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Exhibit 1: Stocks have produced remarkable returns during the past five years, rebounding from the financial crisis. However, investors should not expect double-digit gains to be the norm going forward.

Sources: RIMES, Capital Group. Returns in U.S. dollars.

Portfolio manager Tim Armour discusses equity investing, the European economic recovery, his outlook for interest rates and pockets of value he sees in the market.

It has been more than five years since the financial crisis. We’ve experienced strong equity market returns, but a lackluster economic recovery. At the midpoint of 2014, where do you think we are in the recovery process and what is your outlook?

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American Funds Portfolio Manager Jim Rothenberg discusses the likelihood that the U.S. Federal Reserve will cut back on quantitative easing after tapering speculation for most of 2013 proved incorrect.

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American Funds Portfolio Manager Jim Rothenberg discusses the unexpected strength of the U.S. market in 2013, how it led activity in the global economy and how the U.S. and global economies will influence each other in 2014.

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The statements expressed herein are opinions of the individuals identified, are as of the date published, and do not reflect the opinions of Capital Group or its affiliates. The information provided is intended to highlight issues and not to be comprehensive or to provide advice. Any reproduction, modification, distribution, transmission or republication of the content, in part or in full, is prohibited.

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